India: Higher oil, tighter norms to exacerbate credit crunch

The government’s extraordinary takeover on 1 October of the Infrastructure Leasing & Financial Services (IL&FS) board stems the risk of contagion as it will ensure the lender has adequate liquidity to avert further defaults.

The rupee’s fall to fresh lows, as we expected, will keep markets jittery about the impact of high oil prices on India’s twin deficits and inflation; the government today cut fuel taxes, as we had predicted, and this will result in fiscal slippage.